publication archive: May 2012
May 31, 2012
Olympic Moving Average and Potential Price ProtectionRecent discussions over the farm safety net have focused on the need for price protection. This article examines the price protection provided by a 5-year Olympic moving average of price. A specific focus is its performance during the price decline of the late 1990s, the last multiple-year period of low prices experienced by the U.S. crop sector.
May 30, 2012
Machinery Cost Estimates for 2012 and 2013Every two years, the costs of machinery operations are calculated and made available on farmdoc. The 2012 costs now are available under the "Machinery Costs" link in the farmdoc Management section. Overall, costs have increased by about 15 percent between 2010 and 2012. In our estimates, combine costs have declined between 2010 and 2012 because acres covered with the combine are assumed to increase in 2012.
May 29, 2012
The Season for Determining Corn Yields is UnderwayListen to MP3 podcast
The 2012 U.S. average corn yield will be one of the dominant factors in determining the level of corn prices over the next year. Expectations about that yield have started at a pretty high level, but the critical period for yield determination is really just beginning.
May 25, 2012
Bank Branch Expansion in Rural AreasThe commercial banking industry has been changing rapidly over the past three decades. Changes have occurred in the structure of the industry as well as innovations in the delivery of financial services to individuals and firms. There are continued concerns that the changing landscape and the newer regulatory environment could impact niche banks and banks operating in rural areas.
May 24, 2012
Is the Long Ethanol Boom Coming to a Close?U.S. ethanol production has increased rapidly since 2006, reaching about 13.95 billion gallons in 2011. The increase was driven by a combination of high crude oil prices, federal Renewable Fuel Standards (RFS) for domestic renewable fuel consumption, a generous tax credit for ethanol blenders, and large net exports in 2010 and 2011. The expansion in domestic ethanol production has been one of the main drivers of the corn market since 2006, as corn is the primary feedstock for ethanol production in the U.S. The USDA estimates that corn processed for ethanol production totaled 5.021 billion bushels in the 2010-11 marketing year and projects use at 5 billion bushels for the current marketing year. Accounting for co-product production, net corn consumption for ethanol production in 2011-12 will be near 3.35 billion bushels, or about 26 percent of total expected consumption.
May 23, 2012
Rationing Old Crop Corn and Ethanol Shutdown PricesThe tightness of the old crop corn supply and demand balance is a subject of considerable debate as we head into the final quarter of the 2011/12 marketing year. The final degree of tightness will be a function of several variables, including the accuracy of previous USDA stock estimates, the availability and price of feed wheat this summer, the amount of "early" harvested corn available in August, and the consumption pace of end-users. This latter variable is mainly a function of livestock numbers both in the U.S. and overseas and ethanol production here in the U.S. Since livestock feeders have a limited capacity to adjust usage over a few months, ethanol producers would likely bear the brunt of any additional rationing if it is necessary.
May 22, 2012
Net Returns with ARC under Differing Price ScenariosAgricultural Risk Coverage (ARC) is a revenue-based, proposed Farm Bill program passed by the Senate Agriculture Committee. In this post, net returns for corn are examined using prices and ARC payments detailed in a May 9, 2012 post. At $4.00 per bushel and below corn prices, ARC will make payments, aiding in cushioning revenue losses. However, ARC payments are not large enough is assure profits, as farmers who cash rent will face losses at prices below $4.00 per bushel.
May 21, 2012
Pork Producers Ask, What Happened?listen to MP3 podcast
There is an old saying that, "Life is what actually happens when you're planning on something else!" That adage is playing out for pork producers this spring. The spring hog price rally has not occurred and feed costs have now pushed to record high levels. This combination is resulting in a disappointing period of financial losses this spring and summer that was not anticipated earlier this year.
May 18, 2012
Are Illinois Farmers Getting Older?There is some thought that the age of the farmer/producer is advancing rapidly and with the barriers to entry into the business of farming, that there are fewer and fewer 'young' farmers. A quick look at a panel of data from the Illinois Farm Business Farm Management Association does support the advancing age level of the farmer. For ease of illustration, farmers were placed into one of three age groups. A 'young' group of those under age 50. A 'middle' group of those age 50 and under age 70. And, a 'mature' age group of those over age 70.
May 17, 2012
Annual Payment Limits for the ARC Program and Farm Size in IllinoisThe Farm Bill recently passed by the Ag Senate Committee proposes to replace the Direct, Counter-cyclical, and ACRE programs with a crop-specific revenue program called Ag Risk Coverage (ARC). Details about the ARC program have been provided in recent posts. Today I will focus on the proposed $50,000 limit on total payments for ARC and what types of grain farms might be affected by this limitation using some Illinois county examples. These examples show that payment limitations could affect a significant number of grain farms if ARC payments are triggered over the next Farm Bill period. Furthermore, since larger payments are triggered during periods of greater revenue losses, payment limits will tend to be met for smaller operations during periods when support is, arguably, most needed.
May 16, 2012
What is a Reasonable Starting Point for Estimating the U.S. Corn Yield in 2012?The magnitude of the U.S. average corn yield in 2012 will be one of the most important factors in determining the average price during the 2012-13 marketing year due to the relatively low level of carry-out from the current marketing year. Early in the season, yield expectations generally start with an analysis of the trend in historic yields and an extension of the trend into the current year. As the planting and growing season progress, yield expectations are modified by the timeliness of planting, weather developments, and USDA crop condition ratings. The USDA provides survey based yield estimates beginning in August. See this publication for a detailed discussion of the procedures used by the USDA to produce the survey estimates.
May 15, 2012
Update on U.S. Senate Ag Committee version of New Farm BillThis update reflects additional information regarding the farm safety net in the 2012 Farm Bill voted out by the U.S. Senate Committee on Agriculture, Nutrition, and Forestry (Agriculture Reform, Food, and Jobs Act of 2012). This update mostly reflects additional information about the Supplemental Coverage Option (SCO) for crop insurance. In a few cases, corrections are made to my misinterpretations of the Bill's provisions or to clarify provisions so as to reduce the potential for misinterpretation by readers.
Simple versus Olympic Averages in Prices used in Farm Commodity ProgramsWhen historical averages are needed, an Olympic average often is used rather than a simple average in calculating benchmarks in Farm Bill commodity programs. For example, the Agricultural Risk Coverage (ARC) program that was passed by the Senate Agriculture Committee uses Olympic averages of prices and yields in calculating benchmark revenue. In this post, Olympic averages are compared to simple averages for corn and soybean prices. Generally, Olympic and simple averages will track one over time. The relationship of Olympic to simple averages depends on the nature of distributions across time.
May 14, 2012
Corn Market Direction Unfolding, Magnitude Still UncertainListen to MP3 podcast
The USDA's projections of U.S. and world corn and feed grain supply and demand conditions presented in the May WASDE report set the benchmark by which the corn market will judge unfolding events. Those events are continually unfolding, with some of the more important ones to be revealed this summer.
May 11, 2012
How Many Futures Contracts Can One Market Support?On April 12, the InterContinental Exchange (ICE) announced that it will be offering futures and options contracts for corn, wheat, soybeans, soybean meal and soybean oil beginning Monday, May 14. All five contracts will be settled daily to the corresponding Chicago Board of Trade (CBOT) prices, and final settlement will rely on cash settlement rather than physical delivery. Trading hours will be from 8 PM Sunday to 6 PM Friday, which is substantially longer than the CBOT's current 6:00 PM to 7:15 AM and 9:30 AM to 1:15 PM trading day.
May 10, 2012
As Usual, USDA Reports Contain Some SurprisesToday, the USDA released the May WASDE report and the May Crop Production report. The WASDE report, which included the first forecasts for the 2012-13 marketing year, contained some very bearish projections for corn, but the soybean and wheat forecasts have mixed implications. Following is a brief summary of the new forecasts.
May 9, 2012
ARC and Multi-Year Price DeclinesListen to MP3 podcast
The Senate Agriculture Committee recently passed a version of the Farm Bill that now moves for debate in the entire Senate. This Bill replaces direct, counter-cyclical, and SURE payments with Agricultural Risk Coverage (ARC), a revenue-based program that is further described in yesterday's post by Carl Zulauf (see here). In today's post, ARC payments are computed for cases in which prices are low for several years. This emphasis is taken as ARC is specifically designed to provide protection in cases of multi-year revenue losses, cases in in which crop insurance often provides limited protection. ARC payments are computed for corn in Champaign County, Illinois, as further described in the the article.
May 8, 2012
U.S. Senate Ag Committee version of New Farm BillOn April 26, 2012; the U.S. Senate Committee on Agriculture, Nutrition, and Forestry reported the Agriculture Reform, Food, and Jobs Act of 2012 (2012 Farm Bill) to the full Senate for its consideration. This article summarizes provisions that concern the safety net for U.S. crops: The provisions are in Title I, Commodity Programs; Title XI, Crop Insurance; and Title XII, Miscellaneous.
May 7, 2012
Corn Prices in Three PartsListen to MP3 podcast
Corn prices have recently moved in three distinct patterns. These include the patterns for new crop futures, old crop futures, and old crop cash prices.
May 4, 2012
Estimates of Regional Shifts in Commodity Program Support: IL Corn and SoybeansThe Farm Bill recently passed by the Senate outlines some major changes to programs included in the Commodity Title. As expected, the direct, counter-cyclical, and ACRE programs were replaced by a revenue program referred to as Ag Risk Coverage (ARC). This shift towards a risk-based program has implications for the relative impact on crop producers across the country. In general, while the expected overall levels of support for producers will decline due to budget cuts, moving from a program which provides fixed payments to farmers which are proportional to productivity levels (direct payments) to a program which provides support when revenue declines from an historical average benchmark (ARC) will tend to favor producers in areas of higher crop yield risk. Today's post estimates this effect for Illinois corn and soybean producers by comparing support levels under the direct payment program to the expected payments from the Senate's county-level ARC program.
May 3, 2012
Tax Credit Available for Hiring VeteransFarmers who plan to add additional help this year may want to consider hiring veterans. There is a substantial increase in the job pool as these individuals come back into the civilian workforce. As a further incentive, you may be eligible for a generous tax credit for hiring unemployed veterans. The credit can apply to seasonal employees if they work at least 120 hours.
May 2, 2012
Definitional Debates and Uncertainty for Would-be Biofuel ProducersWords have power, and when the semantic conveyance of those words is ambiguous, inconsistency, instability and risk ensue. For over 100 years, ecologists have debated the definitions of "native" and "nonnative." In the process, the debate has unintentionally spilled over to other terms. For instance, definitional boundaries between "nonnative" and "invasive" have become virtually indiscernible, causing many to use the words interchangeably. In some circumstances this blending ambiguity has crossed over to noxious weeds. As a result, many state statutes will associate invasive plants and noxious weeds. It should be remembered, however, that a noxious weed--which is most often a government regulated plant species that impacts cultivated lands for agricultural producers--is not necessarily an invasive species. In an unmanaged system, the "noxious weed" could be a "native plant" species.
May 1, 2012
Impacts of Limits on Crop Insurance Risk SubsidiesListen to mp3 podcast
Discussion has centered on limiting crop insurance risk subsidies. In a March 2012 report, for example, the General Accounting Office (GAO) used a $40,000 limit on risk subsidies to calculate the number of farms impacted by the limit (see here). In this post, the acres required to reach a $40,000 limit is examined for Illinois farms. Because risk subsidies vary by year, acres required to reach the limit also will vary. Between 2006 and 2012, acres required to reach the limit for average farms in Illinois are between 1,600 and 2,700 acres, not particularly large grain farms. More detail on risk subsidies and acre limits are provided in the following sections.